Japan’s surging electricity prices are a warning for Asian countries

Japan’s surging electricity prices are a warning for Asian countries

Households across Japan are likely to get hit by massive electric bills this month, after the price of wholesale electricity there spiked from about 13 cents per kilowatt-hour in December to an unprecedented peak of more than $1 on Jan. 7. (The average Japanese household uses about 250 kWh per month. In the US, prices are typically 3-4 cents per kWh). By the week of Jan. 25, the price had fallen back to its previous level.

What happened? The spike was partially a pandemic-related anomaly. But it was also an ominous sign of things to come for Asian countries working to curb their carbon footprints.

The immediate cause of the spike was bad weather. Japan was hit by an unseasonable cold spell, sending electricity demand in some regions to 10-year highs as homes and businesses cranked up electric heating systems. That in turn caused a sudden shortage of natural gas, which provides 20% of the country’s power and is entirely imported in liquid form (LNG) on ships. Despite the demand, several of Japan’s biggest utilities were forced to roll back power plant production, as the price of gas more than quadrupled from the beginning of December, hitting levels 1,000% higher than the record lows seen during pandemic lockdowns in May. A similar story played out in China and South Korea, turning the gas crunch into a regional issue.

The timing couldn’t have been worse: LNG was already tight as export facilities in several of the countries that normally supply it to Asia—particularly Australia, Qatar, Malaysia, and Indonesia—had experienced an unusual cluster of concurring outages in the preceding months. The outages were caused by a mix of machinery problems, bad weather, reduced upstream gas production because of lower demand during the pandemic, and the opportunity afforded by the pandemic lull to perform routine maintenance. So when cold weather hit Japan, the LNG ships it needed to provide emergency heat just weren’t there.

LNG was available in the US. But as buyers in Asia made deals with suppliers in the Gulf of Mexico, traffic through the Panama Canal backed up; daily charter rates through the canal jumped from $30,000 to a record $230,000, according to the International Energy Agency.

The bottleneck has since eased, and prices for electricity, gas, and ships normalized as supply caught u

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